How new workers can build financial independence
The key to a successful career launch is to begin with a solid financial foundation. If you or someone you love is a new graduate or a young person at the beginning of their career, this might seem easier said than done. Setting goals, negotiating for a position, or figuring out your desired salary range involves more than taking the first offer that comes your way. But these are important considerations to start your career off right.
How much money do you need to live on?
One of the most common mistakes with money is when people make decisions based on emotion, rather than fact. In the case of negotiating your first job, for instance, this means you could agree to a salary without really understanding if it will support you.
To help determine what you need to live and thrive, create a budget of your needs and wants. Include essential categories like housing, groceries, transportation (either public or your own vehicle), utilities, taxes, debt repayment, etc. Then add in categories for your wants: entertainment, dining out, and travel, for example. Also, how much of your annual salary do you want to save for the future? Many professionals recommend saving a minimum of 20 percent of your income.1,2 A great way to start is to estimate six months of expenses and save that much as an emergency fund. But eventually, financial professionals recommend you save one year’s worth of your income. Dip into the fund only to deal with unexpected expenses, like your car breaking down or losing your phone, and then replenish it afterwards. Once you know your numbers, you’ll be in a better spot to make your first career choice based on your financial facts, not emotions.
How to pick a salary range
With your budget in place, now you can develop your income range. Start with a number that meets the minimum of your expenses and savings and work up to an amount that would allow you pursue your long-term goals, like going to grad school or a down payment for a house. Study the current salary of entry level positions in your chosen field and match them with your budget. If your dream job falls short of your budget by $10,000 per year, can you line up gigs or a side job to meet your needs?
Read the fine print
As you formalize your first job offer, consider the package of benefits beyond the salary. For example, a potential employer may offer disability insurance. Perhaps this seems unnecessary for a young, healthy person, but emergencies can happen. In fact, one in four workers in their twenties today will have to stop working for a period of time due to an accident or illness.3 Disability insurance can supplement your income during recovery. Be sure to read the fine print, however, because oftentimes employer policies only cover a percentage of missed income. In this case, look into buying an individual policy. Some individual disability policies even help cover your student loan payments. As a recent graduate, it is important to protect your income now, when your student loan debt is at its highest.
Do not go it alone
Over the past several years, more workers are openly discussing their compensation packages with their colleagues.4 Whether you choose this route is up to you, but what matters is that you talk with someone you trust about your financial reality and strategy. Recent graduates might have access to a career development office, for example, which can help you create a budget and negotiate your first salary.
You can also work with a financial professional to talk about what you need to begin, as well as where you’d like to go in the coming years. They can help you set goals for the short and long term and build a strategy for reaching them. And if you enjoy this kind of planning, you might consider getting on the other side of it and becoming a financial professional. As a financial professional, you will have more control over your career path, life and income all while helping others live the lives they want to live.
1 Personal savings statistics, Guardian Life.
2 Your Guide to The 50/30/20 Budgeting Rule. Forbes Advisor, March 202
3 Social Security Administration Fact Sheet, June 2021
4 There’s still a taboo on discussing salaries. But millennials are breaking it. Washington Post, April 2020
Brought to you by The Guardian Network © 2022. The Guardian Life Insurance Company of America®, New York, NY
2022-140415 Exp. 7/2024 *Pre-approved content*